Why generic drugs don’t necessarily mean lower prices

December 23, 2013 at 12:00 AM EST

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NewsHour Weekend's Megan Thompson reports on the surprising disparity in pricing for generic drugs. Generics, generally thought to be less expensive, can actually vary widely in price from pharmacy to pharmacy, causing some to skip medications altogether.

MEGAN THOMPSON: Carol Thompson of Edina, Minn., was diagnosed with breast cancer in 2009. For part of the year, she paid more than $400 a month out-of-pocket for her brand-name drug because of her insurance plan’s high deductible. A couple years later, after the drug, called Letrozole, went generic, the price dropped dramatically: to around $10 at her local Costco. Always looking for an even better deal, she decided to ask another big chain about its retail price.

CAROL THOMPSON: The gentleman looked it up and he came back to me with a price of around $400. And I said to him, “Oh can’t be. You must be looking at the brand name drug. It can’t be that expensive.”

MEGAN THOMPSON: But there was no mistake: one store quoted a price forty times more than the other. How could that be? Especially when generic drugs are commonly thought to be so inexpensive.

CAROL THOMPSON: I was shocked. I was confused. I thought, “What am I missing? You know, this doesn’t compute.”

MEGAN THOMPSON: Thompson, who’d never been a consumer activist, said she felt compelled to try to figure this out.

CAROL THOMPSON: I started just on my own to phone some other pharmacies in the Twin Cities here.

MEGAN THOMPSON: Last June, she made another round of calls like she did more than a year prior. And what she found was that nothing had changed: wildly varying prices for her generic breast cancer drug.

CAROL THOMPSON: Hi. I’d like to find out– what the retail price is for a 30-day supply of a generic drug called Letrozole?

$11.04

$29.88.

$45.99.

$364.99

Oh, I didn’t realize it was that much. It’s– $435.

$455.

CAROL THOMPSON: It didn’t seem fair. And it seemed to me especially egregious when it was a life-saving when it involved a life-saving cancer drug. It just upset me.

MEGAN THOMPSON: Her discovery wasn’t just alarming for her; it was also very personal for me. Because Carol Thompson is my mom.

MEGAN THOMPSON: We used her story because what we thought might just be a fluke turned out to be part of a much larger problem that few are aware of. Wildly different retail prices not just for my mom’s cancer drug, but many other generics, too.

LISA GILL: What we found was absolutely shocking.

MEGAN THOMPSON: Lisa Gill is the editor for prescription drug coverage at Consumer Reports. Last spring she led a survey of more than 200 pharmacies around the country asking the retail prices of five blockbuster drugs that had recently gone generic.

The study found the cost of a month’s supply of generic Plavix, a blood thinner, ranged from $15 at Costco and $12 at an online store …all the way up to 10 to 15 times more at Target and CVS. It was similar for generic Lipitor, used to control cholesterol. Prices ranged from 15 to 17 dollars, up to around 9 times higher at other national chains.

LISA GILL: It was unprecedented for us. We had never found this kind of variation in a drug pricing study before.

MEGAN THOMPSON: Gill says while many stores offer older, more common generic drugs for just a few dollars… it’s the prices for some newer generics that vary so much. And, Gill says, they discovered something else in their survey that surprised them.

LISA GILL: You actually can’t get the lowest price until you ask.

CAROL THOMPSON: Can you do any better on the price?

PHARMACIST: We certainly do price matches.

MEGAN THOMPSON: indeed, after my mom tried that strategy, Target, which had one of the highest prices – $455 – said it would match the price at other pharmacies.

PHARMACIST: We would just need the other pharmacy’s information so we can contact them to verify the price.

MEGAN THOMPSON: And remember, others quoted the drug for as little as $11.

MEGAN THOMPSON: So, you’re saying that customers essentially have to walk into a pharmacy and bargain with their pharmacist.

LISA GILL: Right. It’s worse than buying a car. Because at least when you’re buying a car there’s a sticker on the window where you know there’s a price that you’re going to work- try to work down from. In this case, you don’t have anything. You really are the- unarmed with information and- and it’s- it’s really a shame.

MEGAN THOMPSON: Gill says it’s rare for someone to even think of calling around like my mom did, since most consumers have no idea prices can vary so much. And that could lead to the uninsured or people with inadequate drug coverage overpaying by hundreds of dollars. Or skipping medications altogether.

LISA DUNCAN: And she told me the price. I was like, “I can’t get it. You know, put it back on the shelf.”

MEGAN THOMPSON: In 2008, Lisa Duncan moved from Indiana home to Minnesota to be near her aging father. But she had no job, and no insurance to pay for the prescriptions to treat her bipolar disorder. She’d attempted suicide twice before her doctors in Indiana had found the right mix of medications to stabilize her.

She had paid a low insurance copay for one of her generics, called Lamotrigine. But now she says her local big-name chain in Minnesota quoted her an out-of-pocket price of more than $100 for a month’s supply of the drug. A price this single mother of four could not afford.

LISA DUNCAN: It was very scary. I thought I don’t want to back to the way it was. But I can’t afford it. I don’t have the money, you know?

MEGAN THOMPSON: A pharmacist at a community clinic for low-income patients in Minneapolis suggested Duncan try Costco. She said it quoted her a price of around $15 for the month’s supply, compared to the 100 dollar charge at the other store.

LISA DUNCAN: And I said, “are you looking at the right medication,” because that’s just sounded off the wall. And she said, “oh, yeah,” you know.

JESSE LANE: We get phone calls for pricing, and the same person will call back within minutes, thinking that there’s been an error in the pricing because they’ve been quoted such high prices elsewhere.

MEGAN THOMPSON: Jesse Lane is a pharmacist at Costco. It turns out; the low-cost chain allows non-members to use its pharmacies, which consistently had some of the lowest prices on generic drugs. He says unlike some other chains, Costco prices its drugs by adding a small mark-up to the wholesale price it pays, just like every other product on its shelves. Lane has worked at other chains, which he says take a different approach.

JESSE LANE: A lot of times, what other chains will do– they’ll take price for the brand medication and they’ll just decrease that by a certain percentage and give that as their price for the generic.

MEGAN THOMPSON: Costco wouldn’t tell us the wholesale price it paid for my mom’s cancer drug, but another pharmacist told us what he paid. Tom Sengupta owns Schneider Drug. It’s one of just a few small, independently-owned pharmacies left in the Twin Cities. Those smaller independents all quoted my mom some of the lowest prices for her breast cancer generic, something that surprised her.

CAROL THOMPSON: It’s not intuitive, really, that a corner drugstore, an independent– small, independent retailer would also have some of the best prices.

MEGAN THOMPSON: At many large chains, prices are set at the corporate level, according to representatives we spoke to. But Sengupta decides on his own what to charge – $14 for my mom’s drug. He just adds a small mark-up to the wholesale price he can buy it for – anywhere from around 7 dollars to 28.

TOM SENGUPTA: And also, my pricing is based on the person I’m talking to. You know, because if they need something, this is my responsibility to provide that to them. I’m not losing any money.

MEGAN THOMPSON: Sengupta guesses that big chains, which buy in larger volume, can probably get even better wholesale prices than he can. And he bristles when he hears some quoted my mom a price of more than $400 when he’s charging just $14.

TOM SENGUPTA: How could you justify that? You know? If you had any morality – we don’t need to make money like that. We have to ask, what’s happening? Where is their moral compass?

MEGAN THOMPSON: We asked the National Association of Chain Drug Stores for an interview, but the group declined, saying it couldn’t comment on the pricing practices of its members. But in a statement emailed to the NewsHour, the group said instances of customers paying the full, retail price for a drug using no insurance… “… account for only 8.5 percent of prescriptions dispensed by pharmacies nationwide… “

And, there are many factors involved in product pricing. Costs at the exact time when the drugs were purchased from the supplier, the law of supply and demand, decisions related to business models and other factors are some of the components that determine drug prices.

We also asked target why it would charge $455 for my mom’s cancer drug, if it would apparently be willing to match the much lower price of $11. In an emailed statement, target didn’t answer the question directly, only saying factors that impact prices include “a guest’s insurance plan, price changes from manufacturers… and the guest’s deductible.”

And in response to the Consumer Reports survey last spring, CVS, which had some of the highest prices, said in a statement: “a random price check of only five drugs is too small to draw meaningful conclusions about which pharmacies offer the best overall value for customers.”

MEGAN THOMPSON: So in the face of all this, how can consumers find the best prices on generic drugs?No federal agency keeps track of all these prices, and state resources are limited.

So, others have stepped in. New web sites to help consumers compare drug prices have launched, including Good Rx, co-founded by Doug Hirsch. A former employee at Facebook and Yahoo, he came up with his own idea for a start-up after he spent time uninsured and found wildly different prices for his generic drug.

DOUG HIRSCH: And I thought, “this is really inefficient.” You know. I use Orbitz these days for looking at my airline, I was like why is it so difficult for someone to know the cost of their prescription drug.

MEGAN THOMPSON: Good Rx aggregates billions of drug prices from pharmacies across the United States and matches them with discounts, coupons, clubs and other plans, that Hirsch says many consumers don’t know about.

DOUG HIRSCH: There are all sorts of different discounts. This is an online pharmacy, this is a coupon price at Kmart.

MEGAN THOMPSON: Good Rx launched last year and the information is in demand: Hirsch says the web site now gets almost a million visits a month. It’s the type of information my mom, who today has Medicare and a low deductible for prescriptions, hopes people will pay attention to.

CAROL THOMPSON: I would say let the buyer beware. Shop around. Be thorough. Do your homework.

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